Mitigating the adjustment costs of international trade

Akman, Sait / Clara Brandi / Uri Dadush / Peter Draper / Andreas Freytag / Miriam Kautz / Peter Rashish / Johannes Schwarzer / Rob Vos
External Publications (2018)

in: Global Solutions Journal 1 (2), 255-269

Volltext/Document

This articles examines possible policy responses to the adjustment costs related to international trade. It argues that, contrary to the conclusions drawn from frictionless neoclassical models, the costs of adjusting to trade are large and persistent and may be a cause of the increase in the political resistance to trade. The existing mechanisms specifically designed to mitigate the adjustment costs related to trade are inadequate, and they are often a source of inefficiency and inequity since trade shocks are only a part of the economic uncertainty affecting workers. The article also argues that the most promising policies are those that extend the social safety net where necessary, protecting workers from all shocks, not just trade shocks, and those that facilitate the mobility of factors of production across sectors and regions. Many of the latter policies should be pursued anyway to improve the nation’s competitiveness. As has become increasingly evident over the past year, protectionism and unfair trade practices can also be a source of trade shocks affecting exporters in partner countries, underscoring the importance of maintaining an open, rules-based and predictable trading system.

About the author

Brandi, Clara

Economy and Political Science

Brandi

Further experts

Berger, Axel

Political Science 

Gitt, Florian

Economics 

Olekseyuk, Zoryana

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Roll, Michael

Sociology 

Sakketa, Tekalign Gutu

Agricultural / Development Economics 

Stender, Frederik

Economist 

Vogel, Tim

Economy 

Walle, Yabibal

Development Economics 

Zintl, Tina

Political Scientist